Top 4 Challenges in FATCA-CRS Compliance in India

While Reporting Financial Institutions in India are gearing up to identify reportable account holders, complete due diligence & data remediation, they are encountering the following challenges:

1. Individual Reportable Account Holders: While there is a threshold for FATCA reportable individual account holders (USD 50000), there is no such threshold for CRS reportable account holders. This has ballooned the number of reportable account holder’s manifold, resulting in avoidable pressure on RFIs to complete documentation/self_certifcation, remediation and reporting. Though there are some exempted products, a major portion of small value/dormant accounts are held in other reportable categories too like ordinary savings bank, NRE/NRO accounts. Reporting such account holders/ accounts is not going to serve any useful purpose to the jurisdictions. The regulatory authorities may examine fixing a minimum threshold balance/credit-debit summation for a CRS reportable account holder. Such a threshold may be kept at, say a balance above USD 1000 or debit/credit summation above USD 5000 during the year under review or take up with CRS Regulatory authority (OECD) to change the threshold norms for individuals, so as to eliminate small value accounts from reporting.

2. Indicia available, documentation procedure outlined, etc. may not be adequate to serve the objective of identifying all reportable account holders at all the times, correctly. It is suggested that Treasury/International Divisions of the RFIs may be advised to keep a tab on the outward/inward remittances, to ensure that the beneficiaries/remitters submit their tax residency status while issuing remittance mandate. This would enable RFIs to track all transactions/beneficiaries and the and the tax residency status of account holders, resulting in correct reporting of such account holders, who may not have registered/recorded their tax residency earlier.

3. In the case of custodial institutions (DPs), reporting has to be done for the Balance/Value of securities held by them, the income transactions like Interest, Dividends and gross sale Proceeds. While the Depository Participants/Depositories maintain the details of assets in their records, they do not possess the details of income credited (and sale proceeds) with respect to these securities as they are handled either by the RTA or by brokers. Collection of such details from other agencies is a major challenge faced by the Reporting FIs, which needs attention of regulatory authorities.

4. Consequences of wrong/erroneous reporting: In spite of exercising due care while reporting the accounts of various jurisdictions, an RFI cannot rule out the possibility of wrong reporting of account holders/ accounts. This may invite customer complaints and closing of accounts by account holders, if they are wrongly reported based only on the indicia presence, where self_certification is not obtained. Non-reporting of reportable Account holders/accounts may result in regulatory non-compliance, which may entail severe action from statutory authorities. Hence, it is suggested that RFIs be advised to notify the tax residency status to the account holders, upon filing of report to the Nodal Authorities.